Question 1

Examining data on cyclical unemployment plotted against unanticipated inflation shows

Accepted Answer

Empirical evidence suggests that there is a negative relationship between cyclical unemployment and unanticipated inflation. This means that as unanticipated inflation increases, cyclical unemployment decreases, and vice versa. This is because unanticipated inflation can lead to lower real wages, which encourages firms to hire more workers and reduce cyclical unemployment.

Question 2

A beneficial supply shock would cause

Accepted Answer

A beneficial supply shock, such as a decrease in the price of oil, would increase aggregate supply, leading to lower inflation and lower unemployment. This would cause the short-run Phillips curve to shift downward and to the left, reflecting the improved trade-off between inflation and unemployment.

Question 3

Historically,Brazil has suffered higher and more variable rates of inflation than Venezuela.You would expect the short-run aggregate supply curve of Brazil to be ________ than that of Venezuela,and the Phillips curve of Brazil to be ________ than that of Venezuela.

Accepted Answer

The answer of Historically,Brazil has suffered higher and more variable...

Question 4

The expectations-augmented Phillips curve is
? = ?e - 2(u - 0.06).
(a)Graph the long-run Phillips curve and the short-run Phillips curve for an expected inflation rate of 0.04.If the Fed chooses to keep the actual inflation rate at 0.04,what will be the unemployment rate? Label the equilibrium point "A".What is the numerical value of the natural rate of unemployment?
(b)An aggregate demand shock (resulting from increased exports of goods)raises the inflation rate to 0.06 (the natural rate of unemployment and the expected inflation rate are not affected).Show what happens on your graph.Label the equilibrium point "B".What is the numerical value of the unemployment rate?
(c)In response to the aggregate demand shock,suppose the Fed allows the inflation rate of 0.06 to persist.Show what happens on your graph,labeling the equilibrium point "C".In the long run,what is the numerical value of the unemployment rate?
(d)From the situation in part (c),suppose a supply shock raises the natural rate of unemployment by .01 from its original value.If both the inflation rate and the expected inflation rate do not change,show what happens in your graph,labeling the equilibrium point "D".What is the numerical value of the unemployment rate?

Accepted Answer

The answer of The expectations-augmented Phillips curve is
? = ?e...

Question 5

State and briefly explain whether or not the empirical evidence generally supports the belief that there is a fixed trade-off between unemployment and inflation,such that monetary policymakers can achieve the combination they prefer.

Accepted Answer

The answer of State and briefly explain whether or not...

Question 6

The relationship between inflation and unemployment is given by
? = ?e - 2(u -  ).
(a)Draw a diagram showing a long-run Phillips curve and two short-run Phillips curves that contain the following points:
A: ? = .03,?e = .03
B: ? = .06,?e = .06
C: ? = .03,?e = .06
D: ? = .06,?e = .03
Label points A,B,C,and D in your diagram.
The unemployment rate at point A equals .05.
(b)What are the values of the natural rate of unemployment and the unemployment rates at points B,C,and D?

Accepted Answer

The answer of The relationship between inflation and unemployment is...

Question 7

The relationship between inflation and unemployment is given by
? = ?e - 3(u - 0.06).
(a)Graph the long-run Phillips curve and three short-run Phillips curves.
(b)What is the value of the natural rate of unemployment?
(c)If actual inflation is 0.02 and expected inflation is 0.05,what is the unemployment rate?
(d)If actual inflation is 0.08 and expected inflation is 0.05,what is the unemployment rate?

Accepted Answer

The answer of The relationship between inflation and unemployment is...

Question 8

An increase in the expected rate of inflation would

Accepted Answer

An increase in expected rate of inflation can cause an increase in actual inflation. This, in turn, would shift the short-run Phillips curve upward because at any level of unemployment, the expected inflation rate would be higher, resulting in higher inflationary pressures. However, the long-run Phillips curve would not be affected as it is vertical at the natural rate of unemployment.

Question 9

If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the Phillips curve

Accepted Answer

The answer of If the expected rate of inflation rose...

Question 10

You are given the following information about the economy.
  
The natural rate of unemployment is 0.04,Okun's Law is that  ,and the Phillips curve relationship is  
(a)What was the full-employment level of output in each year? 
(b)Calculate the growth rate of full-employment output each year.
(c)If expected inflation was 0.04 for all four years,what was the inflation rate each year?

Accepted Answer

The answer of You are given the following information about...

Question 11

If the expected inflation rate is unchanged,a fall in the natural rate of unemployment would

Accepted Answer

A fall in the natural rate of unemployment would indicate a stronger labor market with lower unemployment, which would increase the bargaining power of workers and put upward pressure on wages, leading to higher inflation. This would shift the Phillips curve to the left. The expected inflation rate remaining unchanged means that the curve would shift horizontally without rotating, unlike option D which suggests a shift in both the short-run and long-run Phillips curves.

Question 12

Consider the following misperceptions model of the economy.
AD: Y = 600 + 10(M/P)
SRAS: Y =  + P - Pe  
Okun's Law: (Y -  )  / = -2(u -  )
Let = 750,= 0.05,M = 600,and Pe = 40.
(a)What is the price level?
(b)Suppose there is an unanticipated increase in the nominal money supply to 800.What is the short-run equilibrium level of output,the unemployment rate,and the price level?
(c)When price expectations adjust fully,what is the price level?

Accepted Answer

The answer of Consider the following misperceptions model of the...

Question 13

The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds

Accepted Answer

The Friedman-Phelps analysis, which introduced the concept of the natural rate of unemployment and expectations-augmented Phillips Curve, suggests that the negative relationship between inflation and unemployment only holds in the short run and under the condition that expected inflation and the natural rate of unemployment are stable. When expectations adjust or the natural rate changes, the relationship does not hold as initially predicted.

Question 14

The Phillips curve shifted during the 1970s primarily because of

Accepted Answer

The Phillips curve shifted during the 1970s primarily because of the two large oil price shocks. These shocks led to a combination of higher inflation and higher unemployment, contradicting the traditional Phillips curve relationship between inflation and unemployment.

Question 15

The Friedman-Phelps analysis suggests that there is a long-term relationship between

Accepted Answer

The answer of The Friedman-Phelps analysis suggests that there is...

Question 16

The expectations-augmented Phillips curve is
? = ?e - 3(u - 0.05).
(a)Graph the long-run Phillips curve and the short-run Phillips curve for an expected inflation rate of 0.03.If the Fed chooses to keep the actual inflation rate at 0.03,what will be the unemployment rate? Label the equilibrium point "A".What is the numerical value of the natural rate of unemployment?
(b)An aggregate demand shock (resulting from increased exports of goods)raises the inflation rate to 0.06 (the natural rate of unemployment and the expected inflation rate are not affected).Show what happens on your graph.Label the equilibrium point "B".What is the numerical value of the unemployment rate?
(c)In response to the aggregate demand shock,suppose the Fed allows the inflation rate of 0.06 to persist.Show what happens on your graph,labeling the equilibrium point "C".In the long run,what is the numerical value of the unemployment rate?
(d)From the situation in part (c),suppose a supply shock (an oil price increase)raises the natural rate of unemployment by .01 from its original value.If the expected inflation rate does not change,show what happens in your graph,labeling the equilibrium point "D".

Accepted Answer

The answer of The expectations-augmented Phillips curve is
? = ?e...

Question 17

Classicals argue that an adverse supply shock would

Accepted Answer

The answer of Classicals argue that an adverse supply shock...

Question 18

Suppose Okun's law holds and a one percentage point increase in the unemployment rate reduces real output by 2% of full-employment output.The expectations-augmented Phillips curve is given by
? = ?e - 2.5 (u - 0.04).
Suppose ? = 0.08 and ?e = 0.03.
(a)What is the natural rate of unemployment?
(b)What is the actual rate of unemployment?
(c)How much is actual GDP compared with full-employment GDP?

Accepted Answer

The answer of Suppose Okun's law holds and a one...

Question 19

An analysis of the American economy since 1960 shows that there is a stable relationship between inflation and unemployment

Accepted Answer

The Phillips Curve illustrates that there is a stable relationship between inflation and unemployment in the short run, suggesting that as unemployment decreases, inflation increases, and vice versa. However, this relationship does not hold in the long run, as expectations adjust.

Question 20

The relationship between inflation and unemployment is given by
? = ?e - 4(u -  ).
(a)Draw a diagram showing a long-run Phillips curve and two short-run Phillips curves that contain the following points:
A: ? = .04,?e = .04
B: ? = .08,?e = .08
C: ? = .04,?e = .08
D: ? = .08,?e = .04
Label points A,B,C,and D in your diagram.
The unemployment rate at point A equals .05.
(b)What are the values of the natural rate of unemployment and the unemployment rates at points B,C,and D?

Accepted Answer

The answer of The relationship between inflation and unemployment is...

Quiz 12: Unemployment and Inflation

Examining data on cyclical unemployment plotted against unanticipated inflation shows

A beneficial supply shock would cause

Historically,Brazil has suffered higher and more variable rates of inflation than Venezuela.You would expect the short-run aggregate supply curve of Brazil to be than that of Venezuela,and the Phillips curve of Brazil to be than that of Venezuela.

State and briefly explain whether or not the empirical evidence generally supports the belief that there is a fixed trade-off between unemployment and inflation,such that monetary policymakers can achieve the combination they prefer.

An increase in the expected rate of inflation would

If the expected rate of inflation rose at the same time the natural rate of unemployment rose,the Phillips curve

If the expected inflation rate is unchanged,a fall in the natural rate of unemployment would

The Friedman-Phelps analysis shows that a negative relationship between inflation and unemployment holds

The Phillips curve shifted during the 1970s primarily because of

The Friedman-Phelps analysis suggests that there is a long-term relationship between

Classicals argue that an adverse supply shock would

An analysis of the American economy since 1960 shows that there is a stable relationship between inflation and unemployment